Populist cries for trade protectionism are again ringing out, as politicians seek to blame China for bad US monetary and economic policy. But destroying trade will not only make us poorer, it is usually the harbinger of war.
Ron Paul: Hello everybody, and thank you for tuning in to The Liberty Report. Daniel McAdams: is with me today, and Daniel, it’s good to see you.
Daniel McAdams:: Good morning, Dr. Paul.
Ron Paul: Today, I would like to talk about the contest between protectionism and free trade. It’s been going on for a long time, literally thousands of years, for that matter. But certainly, in this presidential campaign that’s going on, they don’t deal with issues in a serious manner. But the issue of protectionism has come up, and it’s leaking out and it’s out there, but not in philosophical manner. They’re usually demagouging each other, they say, “If we have protectionism, I’m going to bring all these jobs back”. I would like to talk about what free trade really means. You and I have both made the point that some of the strongest protectionist, the people who want to interfere with free trade, accuse us of being isolationist. For instance, what’s going on with Iran, and I hope we mention that a little bit later on.
Bastiat was the one that used the term, and I understand that he might not have coined it originally, and that term is, “If goods don’t cross borders, armies will”. And I think that principle is true. Not instantaneously, you don’t put up one tariff and the next day there’s an army coming in. But this whole idea of a breakdown of an economy where protectionism is going on, as if you can put on some items and say, “Alright, we’re going to tax you with goods because it’s unfair”, and nothing will happen and there will be no downside and no unintended consequences.
But I might start off by asking you, because in the news was this tariff that we want to put on. I don’t know whether it’s in effect or not. But we immediately have an agreement where things are better with Iran. But the neo-cons (you know, those great free traders and peaceful people) meagerly have another battle to fight. How legitimate is their argument, “Oh, they’re trying to build weapons and they really didn’t give in and they can still build a nuclear weapon”. What’s the significance of all that?
Daniel McAdams:: Well, these are new sanctions on companies that the U.S. says have helped Iran develop a ballistic missile. Iran says, “A ballistic missile can deliver a conventional warhead, we’ve already signed an agreement that we’re not building a nuclear weapon, nor are we planning to”, and that has been confirmed by the UN. So they’re not even allowed to have ballistic missiles to protect themselves when every country around them has one. But I think the larger picture here is that, as you pointed out, the neo-cons and others who don’t want peace with Iran are terrified of the fact that Iran is now going to join the world community.
As you pointed out in your column this week, they’re going other buy a hundred airplanes, they want to sell their oil; they were so many things they’ve been restricted from buying. I have some Persian-American friends who are posting pictures of Iranian caviar on their Facebook, saying, “I can’t wait to get my hands on this again”. So everyone is happy about trade, and it destroys the neo-cons desire that we’ve got to smash Iran in the region and take over the Middle East.
Ron Paul: Not only are the neo-cons terrified about having peace breaking out, but they’re also terrified that free trade will break out and the trade may be facilitated. They are always cutting in and finding something that they have to find wrong, especially when it has to do with Iran. But that is a grade issue. The presidential campaign has introduced these ideas because one of the candidates happens to be leading the pack on the Republican side, and he has made some suggestions, he said, “The Chinese are at fault”. It’s not our Fed, it’s not our taxes, it’s not our regulations that put us at a handicap, it’s always the Chinese fault, and that’s where I think Donald Trump is wrong. He ought to look more domestically at our Federal Reserve.
He says, “Well, they’re selling too much stuff”. Well, maybe the American consumer likes them, maybe the price is right. At one time he said, “45% tariff on anything coming in from China”, and he does this with a straight face. But what really gets me is the interviewers at the debates, they never ask, “What are you talking about? Maybe he got the message that 45% is too high, so he says let’s just put on 35% tariff. But this is hardly going to be helpful to our consumer.
Daniel McAdams:: Maybe you could explain what that would do, because the problem with protectionism for those not well versed in economic theory is that is sounds seductive. They say it will bring jobs, it will make people have better salaries and better incomes and we’ll be able to build stuff here. There’s a seductive quality to the idea of protectionism.
Ron Paul: Yes, and it’s so easy for those who like it, they say, “Free trade is okay, as long as it’s fair”. And that gives them an excuse that “fair”, just like fairness by liberals in the domestic economy is always socialism and welfare redistribution. Fair means you have to regulate entirely on how people are allowed to spend their money. One challenge of this is to challenge the morality of who owns our selves. We own ourselves and that’s why we have civil liberties, but we should also own the fruits of our labor and get to spend it the way we want. but this immediately said, “Well, it’s your money, but we have to take this much, because taxes will make you safe and secure, and also we want to make sure that you don’t get a good price from somebody’s good s overseas”.
They see the short end and they say, “All these jobs were taken from us”. How do they know that? Let’s say we couldn’t make cars anymore, and there was a period of time where we weren’t building as many. But cars are build overseas, and they subsidize them and we buy the cars, but still there are a lot of jobs selling cars. So they can’t say that it takes jobs away, although on the surface it looks that way and people are prone to it. Our job market is horrible, but is it because our consumers are getting by a little bit better because they can buy cheap goods from overseas?
What they don’t look at is the fact that the little guy suffers the most from this. The prices go up and they don’t realize that a tariff is a tax. The Chinese don’t pay the tax. If they’re going to sell it to us, they’ll pay it, but it goes into the price, and that’s what the protectionist want. So if they still want these goods, it’s a tax on the people, and this is just another way for the government to tax the people, whether its inflation or not. The other thing that they’re doing is trying to correct the mistakes of the Federal Reserve, because easy money, low interest rates, and a lot of this so called capital we export buy buying goods and services. It sounds great, but there is a balance, because as we do this, the Chinese and others actually penalize their economy in the long run because they monetize it, they turn it into their domestic money. And then they inflate and they have over-inflation over a capacity and they have to have corrections which they’re going through right now.
But they never look at the big picture that maybe this is a just cause to look at Federal Reserve policies as much as anything. and, of course, you can’t ignore it. If you want free and healthy and prosperous trade, you also have to look at the taxation and the regulation. This is just regulating, they’re saying, “We know what is best for you to buy”. So there are so many harms done, and there’s no evidence throughout history that protectionism makes a wealthier economy. Of course, the theme of our program today is more likely to bring on war conditions, and I guess you’re well aware of the conditions that happened. When we talk about that, I think we can put up that graphic that we have to show what’s happening in this trade war.
Daniel McAdams:: Yes, burnt bridges. If I just heard what you said, there is a kind of a vicious cycle that starts with the Fed and the monetary policy, and that money goes into the Chinese economy and creates a bubble. Plus, with China’s sort of semi-command economy, they don’t really know the prices of things, because they’re not subject to true consumer demands. So they start over-producing in certain areas and then that comes back and they sell goods to the U.S., and it just continues and continues.
Ron Paul: Yes, this is retaliation. I feel the part of the reason the trade wars start is that both the economics probably are weakening. That’s what’s happening, China is weaker and we are weaker, but they’re not looking at the Austrian explanation of the business cycle, and as long as you ignore that, you’re going to come up with patchwork and give people more and more power and that is what’s happening. But, eventually, it becomes very hostile. When you hear the comments in the campaign, they’re not like, “I really like the Chinese and I wish we could work this out a little bit better”. The comments are really pretty hostile , like they are to blame.
Donald Trump had an interesting statement actually today, because a company – I’m sure it’s not a perfect company, but we have praised it because it produced a good product over the years, and that’s Apple. Apple gets voted a lot of money because the consumer likes their product. But Donald Trump is out there bashing them, because they have a small portion of their computer industry, among the whole company, manufactured overseas. He’s attacking this back there, he says, “We will stop that, we will not allow Apple to produce computers overseas, we’re going to bring all those jobs back home”, as if he knew that was the best thing.
One question I’d like to see some of the interviewers ask on television, is, “Mr. Trump, you invested overseas, you take capital out of this country, and you send it over there and you build golf courses and hotels. You’re draining all this wealth from our country, you should be building some golf courses for the middle class in this country. Why don’t you help the people if you’re so anxious to bring jobs back. You bring your hotels back here and take a little less profit”. That would be a silly argument, but it would be a consistent argument because he’s saying that he’s going to stop Apple from doing anything overseas.
Daniel McAdams:: He’ll probably say, “It’s my money, I’ll invest it where I want”.
Ron Paul: There’s a famous period in our history, actually western civilization history. Even though the trade wars and the tariffs have being going on for a long time, they have been misled, because old mercantilism believed that they could be self-sustaining. A mercantilist idea is always there, and when people come along , governments and Federal Reserves mess up the economy. They elicit this productionist idea and they want to regulate things.
In mid part of the 1800s, the mercantilist were challenged by those who did not like the so called “corn laws”, and that is where they highly taxed corn and other products. And, can you believe, food prices were sky high. But the farmers wanted the protection, the people finally figured it out, but they didn’t do it on their own. There was a concerted educational effort by Richard Cobden and also by John Bright, who was in the parliament. They went around, and it sort of reminds me about how we work to educate people on the Federal Reserve. But they eventually went and got the law changed and made a difference. Some people say that that particular incident of the repealing of the corn laws was so important in introducing the age of industrialization and the industrial revolution.
They got a lot of grief over this, but they prevailed and they argued over the moral viewpoint. But also, looking at our title there about war, they were very much pro peace. Although they argued the economic case, they also recognized that if countries trade with each other, they’re also less likely to fight with each other.
Daniel McAdams:: It’s interesting talking about war, I was looking at Zero Hedge today, and we’ve talked about China and we’ve talked about the collapse of commodity prices. Apparently, China is flooding the U.S. with cheap steel, and that’s a huge problem. According to the U.S. government, “The Department of Commerce has put a tariff on corrosion resistant steel from China at 256%”. This is something very new, and they say this will stop all of this over-production of steel coming into the U.S. Zero Hedge ended the article by saying, “Does the U.S. fire the first shot in the trade war, it’s going to be up to China to retaliate”.
Ron Paul: But then again, now that we live in the age of internationalism, instead of correcting the economic errors of both countries, they’re going to say, “Ah ha, even these regulations are messy. The WTO and World Government will be able to sort this out. The WTO is frequently used to allow tariffs to be put on, the WTO is not for free trade, it’s for managed trade. And that’s why libertarians have split on this, some libertarians say, “They ought to lower the tariffs”, others like myself would say, “Yes, but it’s managed trade and they’re going to Mickey Mouse around and they’re going to serve the special interests”. So I think that is what they’re going to have to face up to, they’re going to have to be able to explain this to people to make them understand why it’s a benefit to have free trade.
One thing that I remember very clearly, and I mentioned it before, is my experience in high school when we were fighting the Chinese in the Korean war. I remember co clearly that that was terrible, because my high school coach was drafted and he didn’t come back. But we’re not worried about that right now. Richard Nixon is going to be the most famous and most popular president, but he actually talked to people that we were confronting, just like Kennedy talked to Khrushchev. And just think of all the grief this president, with all his faults, as soon as he talks to somebody, the warmongering neo-cons come down hard on him over Cuba and Iran and yet, this is really what we need. Because we’re less likely to go to a war unless this attitude of protectionism comes in and they think that they can solve this problem because they’re not looking at the real cause of poverty and why the middle class is shrinking and they want to blame somebody else.
I want to thank everybody for tuning in today, and I hope this issue of protectionism versus free trade is of interest to you. To me, it’s very , very important, it’s very historic and the two people I mentioned, Richard Cobden and John Bright in the mid part of the 18th century or the 19th century got the corn laws repelled, and that made a big difference. Right now, we’re in need of that type of attitude for people to stand on principles of free trade and sound money and understand why we’re entering this contest and why are we fighting with people over trade and why are they calling it ‘dumping’.
Well, they’re dumping because maybe it’s over capacity. Maybe our inflation here was exported to China, and they built over capacity and they built too much steel and they weren’t able to judge the market. So there is way too much over-capacity and there is too much debt, it’s a consequence of a deeply flawed monetary policy. The world monetary policy, up until now at least, is run by our Federal Reserve System, but it’s being challenged because the situation is getting tough. But what we don’t need is another incentive for the neo-cons to use to use to go and have a hot war going on. and if we don’t understand the trade issue, we’re liable to move in that direction. Hopefully we can help prevent that and I want to thank everybody for tuning in today, and please come back to The Liberty Report soon.